Like my colleague The Moose, I was stunned by press accounts of Federal Reserve Board Chairman Alan Greenspan’s testimony to the administration’s tax reform study commission yesterday. Back in 2001, you may recall, Greenspan endorsed Bush’s tax cuts on the bizarre theory that otherwise the national debt might disappear and the federal government would have to start buying equity in private businesses to dispose of excess cash. More recently he has returned to his pre-Clinton administration doomsaying about federal budget deficits. So what does he propose now? Draining more revenues from Washington by creating big, fat tax-free savings vehicles to enable high earners to shelter investment income from taxation.To be sure, what Greenspan actually wants is a national consumption tax, and endorses tax-free savings vehicles as a back-door means to that goal. This approach, of course, is a big part of the Grover Norquist “starve the beast” strategy of deliberately engineering large budget deficits in order to force big cutbacks in federal spending, or a shift in the tax base towards wage income or consumption, or all of the above.And the convergence of the Norquist and Greenspan approaches represents a stunning demonstration of how politics has completely debased a large part of the U.S. libertarian tradition.In Grover’s case, the big deal with the devil was his acceptance of the idea that repealing any sleazy corporate tax break represented a verbotin “tax increase.” Thus, instead of championing a level playing field for business competition and for tax policy, Norquist is now the tribune for corporate favoritism and reverse-Robin-Hood fiscal strategies, which help finance and politically drive an agenda that is “libertarian” only to the extent that it screws up government in a way that might eventually cause its general demise.Greenspan’s own Faustian Bargain stems from his famous “pragmatism”–barred by the limited role of the Fed, and by political realities, from actively promoting the free-market paradise he has long espoused, he consistently reaches out to endorse “politically feasible” policies that indirectly achieve his ends–typically, the free candy of tax cuts and tax breaks.Thus, both men embrace a stealth libertarianism that isn’t libertarian at all in its means. We all know Grover’s many ideological and rhetorical vices, but for all his legendary power and influence, he’s essentially just another Washington jive-ass thriving at the intersection of money and politics. But it’s beginning to become more apparent every day that the oracular Chairman has an equally twisted agenda.The Moose’s post today linked to an AEI article by Bill Bradford aboutGreenspan’s much-reported but oft-forgotten association with the Objectivist cult of novelist and proto-libertarian Ayn Rand. I thought I knew the story pretty well, but two things really startled me in Bradford’s piece: (1) Greenspan went straight from Rand’s inner circle (ironically but accurately known as “The Collective”) into the 1968 presidential campaign of Richard Nixon. In fact, Greenspan was already knee-deep in conventional Republican politics when he signed onto Rand’s bizarre excommunication of her protege and former lover Nathaniel Brandon. (2) When asked during various Senate confirmation hearings over the years if he still adhered to Randian dogmas like abolition of all regulations and a return to the gold standard, Greenspan gave no sign of a change of heart or mind.Given Greenspan’s current status as a close ally of George W. Bush, you kinda wish someone had recently asked him if he still regards belief in God as a deadly “mysticism of the mind” (corresponding to socialism, the “mysticism of the muscle”), a key tenet of the Objectivist canon. But whatever his political prudence and well-rehearsed routine as a mere economic technocrat, it is becoming clear that his formative extremism has not gone away–just the candor with which his mentor always expressed her oppressively dogmatic views about ends and about means.
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Editor’s Corner
By Ed Kilgore
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May 16: Has Newsom Signaled End of California’s Latest Progressive Era?
Hard to believe I’ve now lived in California long enough that I can be nostalgic for the recent past. But something just happened that made me wonder if Golden State Democrats are at a turning point, as I suggested at New York:
Governor Gavin Newsom and many other California Democrats hoped that their state could serve as a defiant alternative to the reactionary bent of the second Trump administration, one that proudly stands up for their party’s values. But fiscal realities (including many under the influence of their enemies in Washington) still matter, and a new announcement from Newsom, as reported by the Associated Press, illustrates the limits of state-based progressivism in the Trump era:
“Gov. Gavin Newsom wants California to stop enrolling more low-income immigrants without legal status in a state-funded health care program starting in 2026 and begin charging those already enrolled a monthly premium the following year.
“The decision is driven by a higher-than-expected price tag on the program and economic uncertainty from federal tariff policies, Newsom said in a Wednesday announcement. The Democratic governor’s move highlights Newsom’s struggle to protect his liberal policy priorities amid budget challenges in his final years on the job.
“California was among the first states to extend free health care benefits to all poor adults regardless of their immigration status last year, an ambitious plan touted by Newsom to help the nation’s most populous state to inch closer to a goal of universal health care. But the cost for such expansion ran $2.7 billion more than the administration had anticipated.”
The steady expansion of Medi-Cal, California’s Medicaid program, which is being at best “paused” right now, reflected two different but mutually reinforcing progressive values: a slow but stead crawl toward universal health-care coverage in the absence of a national single-payer system, and a concern for the needs of the undocumented immigrants who play so prominent a role in California’s economy and society. In particular, California Democrats have embraced the argument that health care should be a right, not some sort of earned privilege, in part because health insurance helps keep overall health-care costs down in the long run by promoting early detection and treatment of illnesses while avoiding expensive emergency-room care. Because federal Medicaid dollars cannot be used to provide services for undocumented immigrants, California (like six other states that cover significant numbers of adults, and 13 others who cover children) has used state dollars to pay for them.
California Democrats were in a position to expand Medi-Cal thanks to the legislative supermajorities they have enjoyed since 2018, which is also when Newsom became governor. But the latest expansion has proved to be fiscally unsustainable as statewide budget shortfalls loom. Newsom has been quick to attribute the latest budget woes to revenues losses caused by Trump’s tariff policies. But the broader problem is that, unlike the federal government, California must balance its budget, even though many of the factors influencing spending and revenues are beyond its control. And the problem is likely to get worse as the Trump administration and its congressional allies shift costs to the states, a major part of their strategy for reducing federal spending (to pay for high-end federal tax cuts).
There’s a specific emerging federal policy that probably influenced Newsom’s latest step: Congressional Republicans are very likely to adopt a punitive reduction in Medicaid matching funds for states that are using their own money to cover undocumented immigrants. The details are still under development, but the provision could hit California pretty hard.
Numbers aside, this episode represents a potential turning point in California’s progressive political trends, reflecting Trump’s better-than-expected showing in the Golden State in 2024 along with the passage of a ballot initiative increasing criminal penalties for drug and theft offenses and the rejection of an increase in the state’s minimum wage. There’s even some optimistic talk among California Republicans about breaking their long losing streak (dating back to 2006) in statewide elections next year. That’s pretty unlikely given the high odds of an anti-Trump midterm backlash, but the fact that the heirs of Ronald Reagan are even dreaming dreams is a bit of a surprise.
It’s also possible that the ever-ambitious Newsom doesn’t mind calibrating his own ideological image toward the perceived center in his final days as governor (he’s term-limited next year). He and other California Democrats can only hope that economic trends and what happens in Washington give them a choice in the matter.